Upgrade FLSA: legislation vs free market in employment

The Department of Labor is upgrading the minimum salary for exempt employees from $684 per week ($35,568 per year) to $844 per week ($43,888 per year) as of July 1, 2024, and then to $1,128 per week ($58,656 per year) as of January 1, 2025.

The idea is that this minimum salary should be tied to the economic reality. And that makes at least a little sense. 

But, let’s face it, the FLSA makes little sense in 2024. Congress first passed this law in 1938, and they have amended it from time to time, but it remains substantially the same. In a nutshell, it divides employees into two classes: exempt and non-exempt. The non-exempt are paid by the hour and can receive overtime pay, and the exempt receive a salary.

Both groups have minimum salaries, and the law enshrined the 40-hour workweek into law.

And so, what’s wrong with that in 2024? Just about everything, and this latest law change is an example of this.

The economy is very different

In 1938, the unemployment rate was 19 percent. People wanted government intervention. Now when the unemployment rate breaches 4 percent, we all freak out. 

Many of the jobs we have today did not exist in 1938. Certainly, my job did not exist, and yours probably did not either. As technology has changed, the workplace has shifted. The current debate over remote work demonstrates that this is not even close to the same workforce Congress looked at 86 years ago.

In 1940 the US population was 132,164,569 with approximately 8 million farm workers. In 2023, the population was 339,996,563 with only 2.4 million farm workers. Today we have over 3 million IT workers, in comparison. 

And while the original FLSA did not cover farm workers until 1966, just looking at this one set of facts indicates how very different the economy is today.

And while there have been tweaks to FLSA it still is a law built for an economy that doesn’t exist.

Related: Legal experts chime in on the FTC’s noncompete ban

What could a new law look like?

If we wanted to start from scratch, what could we do differently? This is actually a very difficult thought exercise because, of course, people are paid by the hour unless they are meet the duties test to be salaried employees!

But it doesn’t need to be that way. We don’t even need a 40-hour work week!

Other countries survive with different rules.  France has a famous 35-hour work week (although that isn’t universal in France); in Bhutan, the average worker works 54.30 per week (the highest in the world). In practice, French employees work an average of 30.7 hours per week. 

Many professions that offer services don’t charge clients an hourly rate but rather pay by the project.

Many people like the flexibility of a salaried job–no matter how many hours they work, their paycheck remains the same. However, some complain that this allows employers to exploit them. It’s true that absent safety regulations, a company can require an exempt employee to work around the clock.

Senator Bernie Sanders tried to lower the work week to 32 hours, but that will go nowhere. President Biden just vetoed a bill that would have allowed employers to sidestep joint employer regulations that often affect franchised companies.

Some countries offer strong employee protections. The US generally does not. The vast majority of employees are at-will employees. And 36.6 million people in the US are not employees at all, but independent contractors.

So, our status quo doesn’t have to be the future. And while there are a million ways to look at employment, there is one foundation principle that I would like to apply: Contract law.

Why I support contracts?

I spent a good portion of my career laying people off. I know how the at-will system works, and there are many advantages for both employers and employees. The same law that allows a company to terminate you without notice allows you to quit without notice. 

But, what if we flipped employment law on it’s head and said, instead of detailed rules that said who could be paid a salary and who earns overtime, we just said “Everyone is an adult here. You work it out.”

In that case, if I wanted to work for $3 an hour, I could take a job that pays $3 an hour. As an employer, I would also be free to offer a lousy job, but certainly couldn’t force anyone to take it.

If I wanted to offer a salary to work 80 hours a week at $30,000 a year, I could do that, but it’s doubtful anyone would take it.

Let people make the contracts they want to make. Under my system, offer letters would spell out the conditions of pay, including maximum hours per week for salaried roles, and when overtime kicks in for jobs that pay by the hour. And then let people decide if they want to take the jobs or not.

Positions could either be at-will or contracted. Either way, everything would be upfront at first.

Would that mean businesses could take advantage of some people? Absolutely. But they do that today, already. With a clear contract for every role, you would know what you were getting into. Heck, I’d even throw in a mandatory 48-hour waiting period between when the offer was made and when a candidate could accept the offer, giving them time to consult friends at minimum and a lawyer if necessary. 

You might say it would be a disaster without protections. But the true minimum wage is always zero, and too many protections lead to that. Take a look at California, which implemented a $20-an-hour minimum wage for fast food workers, and many people lost their jobs.

Honesty is the best policy in my book and I value independence. So, let individuals decide what they want. The results might surprise you.